Fixed rate- KBC 10 year 2.95% or UB 4year 2.6%?!!

2 kids in crèche (ages 1.5 and 3.5)/ we are 39 and 38/ both wife and I working with 40k salary each/funding DC pension AVCs in full to 20%/ total retirement savings about 480k/ no debt/ 23k cash savings/ interested in FIRE so still want a cash cushion built up for the next bear market

Currently 203k/26years left on a 350k house on UB fixed at 3.2% and struggling to make a decision on KBC 10 year or UB 4 year fixed...no cash back to sweeten either deal as already with UB and if I were to switch to KBC, drawdown will not be in time before the end of March when 3k deal ends. Have some cash now so we can afford to drop the mortgage amount a bit and shorten term so thinking either:

A) 200k(min loan to qualify for 2.6%) with UB fixed for 4 years out of a 20 year term but with rates most likely going up in the future, lowest rate now but afraid what kind of rates will be available in 4 years time.
B) smaller 195k loan with KBC fixed for 10 years of a 20 term at the slightly higher rate of 2.95% but at a minimum the payment won't be more than this for 10 years.
OR C) don't shorten term to keep flexibility of a smaller payment in case of trouble?

Hope to keep overpaying a bit each year, but just can't decide. Thanks for any help/opinions!

I can't help with deciding between the two. But UB allow you to overpay your fixed rate by up to 10% each year without any penalty. Maybe KBC do too.

For me, I've fixed mine with UB (at just over €200K too) and plan to pay as much as I can each year (which will be way less than 10%). I'm not using mine to reduce the term.

My thinking is, that the repayments are reducing but I'm still paying as much as I can so the term is reducing anyway without me having to contract into it. So if something comes along in a couple of years I'm not stuck paying the higher rate. I can use it as a buffer.

Firstly, re cashback, I'd expect KBC to extend this offer beyond the end of March. BOI & UB have already extended theirs to end of June, so I'd expect KBC to follow suit if they want to attract switchers (EBS is already extended to the end of the year).

In terms of the rates, I think they're both great compared to what else is available.

Let me ask you a question for a moment. I'm not suggesting it's the same thing, but what if I offered you a 2.2% tracker for 10 years? Think about that for a minute.

The 10 year bond yield for German government bonds (as close as you'll get to risk free) are currently 0.73%. That means the market is willing to lend money at 0.73% over 10 years (fixed), so that's roughly what they expect the ECB rate to average over the 10 years. They won't be right - the average will be either higher or lower, but it's currently priced at 0.73%. Trying to work out any different is thinking you know more than the markets. So fixing at 2.95%, you're getting a fixed margin of 2.22% for 10 years over the current consensus of where ECB will be.

What I would recommend however is that you confirm KBC policy in relation to early repayments. I understand you can overpay 10% of the balance without triggering a break fee calculation, but I am not certain on that.

In relation to your other question about shortening the term, in your circumstances (based on limited information), I wouldn't rush to contractually shorten the term. You've young children, and while a fixed rate gives you certainty over mortgage payments, you will have lots of other expenditures that are less predictable. Firm up on the details of overpayments, and decide from there.

Best of luck with the decision.

I recently switched to KBC.
I split the mortgage 75% fixed for 10yrs, 25% variable.
I'm allowed overpayments up to 10% on the fixed portion. Unlimited overpayments on the variable part.
I was nervous about not drawing down before the 31st Dec deadline for the 3k cashback but the guy I dealt with in kbc told me that this would be extended to March, which it was.
Got the cashback straight away too, unlike the 3 month waiting period with my previous lender.

lledlledlled said:

I'm allowed overpayments up to 10% on the fixed portion

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Hi, could you clarify (I'm not a KBC customer, but the question keeps coming up) - is the 10% based on an extra 10% of the normal repayments, or is it 10% of the outstanding balance?

RedOnion said:

What I would recommend however is that you confirm KBC policy in relation to early repayments.

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Very good advice for fixing for 10 years.

RedOnion said:

I wouldn't rush to contractually shorten the term. You've young children, and while a fixed rate gives you certainty over mortgage payments, you will have lots of other expenditures that are less predictable.

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I think given your financial situation you should be targeting being mortgage free by 60, or better again by the time the eldest goes to collect. To do this you probably need to consider shortening the term if you plan to fix for an extended period
Regarding the less predictable expenses - I would say your expenses are more predictable at the moment given childcare is pretty static in cost and there are no school costs etc coming in yet. I think you will hit a period of unpredictability once the children start school and after school activities kick in, but should stabilise relatively quickly. My kids are nearly 6 and 4 - so a few years ahead of yours at the moment.
The only thing I would add in is if you plan to send your kids to private secondary school you need to factor that in as that will come around quicker than you think

RedOnion said:

Hi, could you clarify (I'm not a KBC customer, but the question keeps coming up) - is the 10% based on an extra 10% of the normal repayments, or is it 10% of the outstanding balance?

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My understanding (as a KBC customer) based on my discussions with them is you can overpay by an extra 10% of the normal repayments on a monthly basis but they do not permit lump sum ad-hoc over payments against a fixed mortgage.
That said, getting consistent answers from KBC on items like this can be tough at times ;-)